Shiseido : Corporate Governance Report_20210903

Corporate Governance Report

Last Update: September 3, 2021

Shiseido Company, Limited

President and CEO, Representative Director: Masahiko Uotani Contact: [phone] Securities Code: 4911 https://corp.shiseido.com /en

The corporate governance of Shiseido Company, Limited (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and

Other Basic Information

1. Basic Views

The Shiseido Group including the Company sets out "BEAUTY INNOVATIONS FOR A BETTER WORLD" as THE SHISEIDO PHILOSOPHY, and defines the corporate governance as our "platform to realize sustainable growth through fulfilling the corporate philosophy".

The Company is committed to maintaining and improving management transparency, fairness and speed, by putting into practice and reinforcing the corporate governance, and strives to maximize medium- and long-

term corporate and shareholder value through dialogues with all stakeholders, "consumers", "business

partners", "employees", "shareholders", and "society and the Earth". In addition, while fulfilling social responsibilities, the Company aims to achieve optimized distribution of values to respective stakeholders.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated

As of September 3, 2021, the Company has implemented each Principle of the Corporate Governance Code.

[Disclosure Based on the Principles of the Corporate Governance Code] Updated

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With respect to the items that have been updated, a ○ mark is affixed to the item number. (April 9, 2021)

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Initiatives for the Company's corporate governance are disclosed in convocation notices of general meetings of shareholders, annual securities reports, annual reports and others, in addition to this report.

Descriptions of the items disclosed based on each Principle of the Corporate Governance Code are as follows:

○1. The Company's corporate philosophy, corporate strategies and business plans

Provision of Information>

The Company's corporate strategies and business plans are contained and disclosed in the Company's Notice of Convocation of the 121st Ordinary General Meeting of Shareholders (pages 20 to 31). https://corp.shiseido.com/en/ir/shareholder/2021/pdf/shm_0002.pdf

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2. Basic Policy on Corporate Governance

The basic stance and basic policy on the Company's corporate governance are shown in 1. of "Basic Stance on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information" in this report. In addition, reasons why we adopted the current corporate governance system are shown in 3. of the "Status of Management Structure for Management Decision-Making, Operational Execution and Supervising, and Other Corporate Governance Systems" in this report.

○3. Separation of monitoring and execution functions

The Company has specified matters to be determined by resolution of the Board of Directors in the Regulation on the Board of Directors. Such matters consist of items relating to the general meeting of shareholders, personnel/organization, account settlement stock/bonds, and stock acquisition rights, corporate property, etc., business management and others of the Shiseido Group, that are matters provided in the Companies Act and other laws and regulations, and any other important matters equivalent thereof. Meanwhile, with the aim of clarifying the allocation of responsibility for the business management and accelerating decision making by delegation of authority, the Company introduced an executive officer system in 2001. Authority for making decisions on matters relating to business executions other than those specified in the Regulation of the Board of Directors has been delegated to the extent appropriate so that President and CEO can make decisions after deliberation at the Executive Committee, Global Leadership Committee, and other meeting bodies.

After extensive discussions at the Board of Directors were held with regard to the corporate governance of the Company during fiscal 2015 and also assessment of the effectiveness of the Board of Directors was performed, and in light of the decision that the Company will adopt the "monitoring board-type corporate governance", the Company made revisions of matters that needed to be deliberated and decided at the meetings of the Board of Directors.

Also, since January 2021, in order to further evolve the matrix-type management execution system, further improve profitability and promptly implement structural reforms throughout the company, the Company introduced a new "executive officer" system (including current corporate officers). This is based on the idea of the system under which the head of each region in the global matrix-type organization is called Executive Officer who is to be globally responsible for business execution in his/her region. Aiming to strengthen the functions of the group headquarters, a system for the right person in the right place will be constructed regardless of gender, nationality, or organization to which the person belongs. Under this system, diverse values and ideas are reflected in our management system so as to achieve the goals of WIN2023 and realize the Company's long-term vision, "Be a Global Winner with Our Heritage."

○4. Diversity of Directors and Audit & Supervisory Board Members

The Company believes that the Board of Directors of the Company should be composed of directors with various viewpoints and backgrounds, on top of multilateral sophisticated skills, for effective supervision over the execution of business as well as decision-making on critical matters. Furthermore, the Company believes that Audit & Supervisory Board members should have the same diversity and sophisticated skills as the directors as they have a duty to attend meetings of the Board of Directors and state opinions as necessary.

When selecting candidates, we place importance on ensuring rich diversity, taking into account not only the achievement of gender equality, but also other attributes including age and nationalities and personalities, and insights and experiences in various fields related to management. In addition, the Company has set a certain maximum term of office for external directors and external audit & supervisory board members in order to reflect their views, which are free from the Company's existing structure, to the management of the Company, and by allowing a handover period from long-serving external directors and audit & supervisory board members to newly-appointed external directors and audit & supervisory board members to ensure appropriate transition.

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5. Ratio of External Directors at the Board of Directors

Based on the Board of Directors' conclusion that it would be appropriate for the Company to adopt the "monitoring board-type corporate governance," the Company established its view on the ratio of external directors on the Board of Directors.

In the Company's articles of incorporation, the maximum number of board members is set at 12. Respecting this upper limit and in consideration of the Company's business portfolio and scale, an optimum number of directors is elected such that they are able to appropriately supervise the management.

For external directors, the number is set at three or above to allow such members a certain degree of influence within the board. In addition, the Company has established the target of electing half or more of its directors from outside. ※

For selecting external directors, high priority is given to independence. Our basic principle is that candidates for external directors are required to meet the Company's "Criteria for Independence of External Directors and Audit & Supervisory Board Members" as well as possess highly independent thinking.

※Eight directors were elected at the 121st Ordinary General Meeting of Shareholders, four of whom were external directors. However, since Ms. Yoko Ishikura was appointed Chief Digital Officer of the Digital Agency of Japan, established on September 1, 2021, she resigned as external director on August 31 of the same year. For this reason, we currently have seven directors, three of whom are external directors.

○6. Criteria for Independence of "External Directors and Audit & Supervisory Board Members" <>

4.9: Independence Standards Aimed at Securing Effective Independence of Persons Who Will Become Independent Directors>

The Company establishes its own "Criteria for Independence of External Directors and Audit & Supervisory Board Members" (the "Criteria") with reference to foreign laws and regulations and listing rules, etc. for the purpose of making objective assessment on the independence of the external directors and audit & supervisory board members.

In connection with selecting candidates for external directors and audit & supervisory board members, the Company places emphasis on a high degree of independence of the candidate from the viewpoint of strengthening corporate governance and accordingly, the Company makes judgment on whether or not the candidate has a high degree of the independence in accordance with the Criteria.

Specific descriptions can be found in the Internet Disclosure Accompanying the Notice of Convocation of the 121st Ordinary General Meeting of Shareholders (Voluntary Disclosure) (pages 1 to 4), and [Independent Directors] in 1. Organizational Composition and Operation of "Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" in this report. https://corp.shiseido.com/en/ir/shareholder/2021/pdf/shm_0003.pdf

• 7. Policies and Procedures in Appointing and Dismissing the Senior Management and Nominating

Candidates for Directors and Audit & Supervisory Board Members by the Board of Directors

In nominating candidates for directors and Audit & Supervisory Board members and appointing executive officers, it is a policy of the Company to nominate or appoint appropriate persons who are able to fulfill their duties and responsibility, fully taking into consideration their personality and intellectuality and the like regardless of gender, age and nationality. In addition, the Company also takes into consideration "the importance of roles to fulfill in response to entrustment on management by shareholders" for candidates for directors, and "the importance of audit and functions of Audit & Supervisory Board members for the corporate management" for candidates for Audit & Supervisory Board members, in nominating them respectively.

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Nomination of candidates for directors and appointment of executive officers are determined upon resolution by the Board of Directors after the Company receives a report from the Nomination & Remuneration Advisory Committee chaired by an external director on whether or not the candidates are adequate.

In addition to following the procedure, appointment of President and CEO is further carefully reviewed by the Nomination & Remuneration Advisory Committee. The candidate for President and CEO is selected from both inside and outside of the Company without excluding all sorts of possibilities from the standpoint of realizing the corporate philosophy and corporate strategies of the Company, and is bound to be subject to deliberation at the Nomination & Remuneration Advisory Committee chaired by an external director and the CEO Review Meeting composed of external directors and external members of Audit & Supervisory Board, starting from this selecting stage. In a case where an appropriate person was appointed as the President and CEO through such processes, but the President and CEO cannot fulfill job responsibilities for unavoidable reasons, the person is dismissed after a resolution by the Board of Directors after careful review by the Nomination & Remuneration Advisory Committee and the CEO Review Meeting. The CEO Review Meeting assesses, during meetings that are held several times in a year, whether a President and CEO has fulfilled his/her duties and responsibilities, and the Nomination & Remuneration Advisory Committee deliberates the group's judgment at meetings.

For nomination of candidates for Audit & Supervisory Board members, the representative directors select candidates, and the Company receives a report from the Nomination & Remuneration Advisory Committee on whether or not the candidates are adequate. Then the Board of Directors determines the nomination of candidates for Audit & Supervisory Board members upon receiving consent of the Audit

• Supervisory Board on submitting a proposal for the election to the ordinary general meeting of shareholders.
  We have clarified the concepts described above and operations that have been implemented up to now, and comprehensively set the rules for directors, Audit & Supervisory Board members and executive officers including criteria for appointment, appointment procedures, their upper limit of term, their maximum age, their retirement procedures, dismissal examination criteria for them, and dismissal procedures. The Regulations Regarding the Appointment and Dismissal of Executive Officers, Directors, and Audit & Supervisory Board Members were stipulated in fiscal 2019, and other rules related to officers were revised at the same time.

○8. Explanations with Respect to the reasons for Nominations of Candidates for Directors and Audit & Supervisory Board Members by the Board of Directors

With respect to all candidates for directors and Audit & Supervisory Board members, the Company has clarified "Reasons for Nomination of the Candidate" in relevant proposals for the election of the Notice of Convocation of the Ordinary General Meeting of Shareholders (Reference Document). The "Reasons for Nomination of the Candidates" for seven directors (※) and one Audit & Supervisory Board member proposed for election at the 121st Ordinary General Meeting of Shareholders are shown below. In addition, reasons for nomination for election of four Audit & Supervisory Board members other than one member identified above out of five members in the office of the Audit & Supervisory Board members as of the conclusion of the 121st Ordinary General Meeting of Shareholders are also shown below.

※While eight directors were elected at the 121st Ordinary General Meeting of Shareholders, Ms. Yoko Ishikura resigned as external director on August 31, 2021.

[Directors]

Masahiko Uotani:

Mr. Masahiko Uotani has a proven track record in business management and is particularly highly regarded within the marketing field. As a result of this and other factors, the Company invited him to become President and CEO, and in April 2014 he assumed that office. Following his appointment as a director of the Company at the 114th ordinary general meeting of shareholders held on June 25 that year, he was selected as representative director by the Board of Directors and since then has undertaken the mandate given by our shareholders to steer the Company's management.

In 2020, which was the final fiscal year of the medium-to-long-term strategy VISION 2020, he promoted the selection and concentration of businesses and brands, continued investments in global brands for

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sustainable growth, and worked on formulating and implementing measures to recover business results with the aim of realizing the Company's transformation to "Be a Global Winner with Our Heritage," despite an extremely harsh management background due to the global epidemic of COVID-19.

Due to these facts and the leadership that enables him to promote reforms, the Board of Directors has continuously selected him as a candidate for director.

(The 121st Ordinary General Meeting of Shareholders)

Yukari Suzuki

Since joining the Company, Ms. Yukari Suzuki has acquired business skills by handling several brands and new business at the Shiseido Group, and accumulated a wealth of experience and knowledge by striving to grow brands as the Representative Director and President of IPSA Company, Limited, a subsidiary of Shiseido. Further, she has a wide range of experience in brand marketing focusing on prestige brands, a driving force of the Company's growth in the Prestige Brands Division of Shiseido Japan Co., Ltd. Additionally, she played a leading role in globally accelerating the growth of Clé de Peau Beauté, one of the Company's most valuable prestige brands in the Global Prestige Brands Division of the Company. Since January 2021, she has assumed office of Representative Director of the Company, and has assisted the CEO in general corporate management of the Company.

Due to these facts the Board of Directors has continuously selected her as a candidate for director. (The 120th Ordinary General Meeting of Shareholders)

Norio Tadakawa

Since joining the Company, Mr. Norio Tadakawa has handled work related to marketing and product development, and possesses a wealth of experience in this field. Further, he acquired general management skills through his experience in the International Business Planning Department and Corporate Planning Department. He has also assumed the post of Chief Financial Officer, and thus possesses the experience and knowledge in finance and accounting. Based on those extensive experiences, until 2019, he played a leadership role in the reform of the supply network in which the supply shortage had been a serious issue, and actively contributed to solving management issues. In addition, since October 2020, he has assumed the office of Japan Region COO, and is promoting a reform of the Japan business, which is under a harsh environment due to the COVID-19 pandemic, overhauling strategies and taking charge of specific actions. Due to these facts the Board of Directors has continuously selected him as a candidate for director.

(The 121st Ordinary General Meeting of Shareholders)

Takayuki Yokota (newly appointed):

Mr. Takayuki Yokota possesses a high level of expertise in finance and accounting as well as international business and management capabilities in a diverse environment, having worked as head of Japan subsidiaries and a vast range of regions at global corporations, and as head of finance at global headquarters. He joined the Company as Vice President of Global Headquarters Finance in November 2019. Since January 2020, he has been efficiently identifying and resolving business challenges as Vice President of the Financial Accounting Department and promoting the globalization of the Company's finance function, a crucial element in its aim to "Be a Global Winner with Our Heritage."

Due to these facts the Board of Directors has newly selected him as a candidate for director. (The 121st Ordinary General Meeting of Shareholders)

Yoshiaki Fujimori

Mr. Yoshiaki Fujimori is the first Asian to assume the position of Senior Vice President at General Electric Company in the United States. Further, he has a wealth of experience and a proven track record as a global leader serving a leading role in promoting globalization at JS Group Corporation (currently LIXIL Group Corporation) and its group companies. Mr. Fujimori has practical knowledge of the globalization of Japanese companies, based on which he has actively expressed opinions at meetings of the Board of Directors regarding the Company's medium-to-long-term strategy. He has achieved an adequate role on supervising the execution of business as external director of the Company. Accordingly, the Board of Directors has decided to continuously select him as a candidate for external director. After election, he is expected to continue fulfilling the abovementioned roles.

(The 121st Ordinary General Meeting of Shareholders)

Yoko Ishikura:

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